The Unaffordable Care Act

header-hoover-institution-fellows1-1WSJ, Editorial Board

Premiums are spiking around the country. Obama is in denial.

BN-JI407_1costs_M_20150710184608The Affordable Care Act was supposed to make insurance, well, more affordable. But now hard results are starting to emerge: premium surges that often average 10% to 20% and spikes that sometimes run as high as 50% or 60% or more from coast to coast. Welcome to the new abnormal of ObamaCare.

This summer insurers must submit rates to state regulators for approval on the ObamaCare exchanges in 2016—and even liberals are shocked at the double-digit requests, or at least the honest liberals are. Under ObamaCare, year-over-year premium increases above 10% must also be justified to the Health and Human Services Department, and its data base lists about 650 such cases so far.

In a study across 45 states, the research outfit Health Pocket reports that mid-level Exclusive Provider Organization plans are 20% more expensive in 2016 on average. HMOs are 19% more expensive, and for all plan types the average is 14%.

President Obama dropped by Nashville last week to claim Tennessee as a state where “the law has worked better than we expected” and “actually ended up costing less than people expected,” so let’s test the reality of those claims. As a baseline, in 2015 premium increases for Tennessee plans ranged from 7.5% to 19.1%.

For 2016 BlueCross BlueShield of Tennessee—one of the state’s two major insurers—is requesting a 36.3% increase. One product line from Community Health Alliance Mutual is rising 32.8%, while another from Time Insurance Co. hits 46.9%. Offerings from Cigna, Humana and UnitedHealthcare range from 11% to 18%. If this means ObamaCare is working better than the President expected, then what, exactly, was he expecting?

Underlying health costs continue to rise, but this trend is merely about 3.5% to 7% depending on the state. Health plan profits are capped by ObamaCare price controls, so don’t blame corporate greed either. In a rational market, premiums wouldn’t be soaring in a single year by 49.1%-65% (Blue Cross Blue Shield of New Mexico) or 40.6%-58.4% (Geisinger Health Plans of Pennsylvania).

The detailed, fact-heavy actuarial filings justifying these increases show that they result from ObamaCare’s political regulations. The law bans insurers from charging people prices linked to their health risks in order to force the young and healthy to cross-subsidize their elders. But if premiums don’t cover medical claims, then premiums must rise to fund these cost transfers.

After the first two years of ObamaCare in 2014 and 2015, insurers have more experience with the demographics and expenses of the new enrollees. They seem to be older and have more chronic conditions like diabetes or congestive heart failure than predicted. There are also fewer than expected.

Among those eligible for the ObamaCare exchanges—meaning they lack coverage through a job, spouse or another government program—only about a third have signed up, according to HHS. The number of truants—despite the individual mandate penalty-tax—increases with income and as ObamaCare’s subsidies phase out.

The subsidies are most generous between 100% and 150% above the poverty line, where an ObamaCare policy is essentially free. Some 76% of eligible individuals at that level are enrolled, report the consultants at Avalere Health. But enrollment drops to 41% between 151% and 200% of poverty, and then to 30% at 201%-250%. At 251%-300%, the share is 20%, and 16% for 301%-400%.

In other words, the more lower- and middle-income people must pay for ObamaCare with their own money, the less likely they are to participate. They are concluding that ObamaCare plans—with their overly rich mandated benefits, narrow physician networks, and hidden income redistribution—do not offer a good value for the price. This is not a formula for healthy insurance markets.

These rate hikes aren’t final, and some may be rejected by state insurance commissioners. In Tennessee, Mr. Obama encouraged regulators to exert such political control. But a business can’t continue to pay more than $1 for every $1 of revenue forever, and ongoing insurance volatility and rising health industry consolidation may ensure that the 2016 premium blast is not a one-time event.

This is a no-excuses moment for liberals. In 2014-15 they tried to deny rate shock by claiming pre-ObamaCare plans couldn’t be compared to compliant ones, but these are the apples of 2015 compared to the apples of 2016.

This is also a political opening for Republican presidential contenders beyond the “repeal ObamaCare” slogan. Even with subsidies, beneficiaries are bound to notice these price increases. Incomes aren’t rising at 10%, much less 40%. Maybe the entitlement isn’t as entrenched as Washington wisdom suggests.

More to the point, U.S. health care is becoming a government-directed network of oligopolies dominated by huge, politically protected incumbents. The insurers would much rather pass on premium increases to consumers who have no other options than challenge the regulations that caused the increases.

An alternative GOP agenda that promises more patient choice and control, and more competition and innovation, might well gain popular support—even among the voters ObamaCare was supposed to help.

WSJ

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